This week I received the following email regarding a death in someone’s family. They asked if I could write an article regarding final expense coverage with the intent of helping others in the future. I am happy to do so and appreciate the e-mail.
The email read as follows:
“My grandmother passed away recently. She did not have any life insurance or really anything of value- only debt. People do not understand the impact this situation can cause on the family members left behind. Not only do we now have to deal with the previously unknown debt but- more important- quickly find money to provide a proper burial for this beloved family member.”
Final Expense Insurance (Also referred to as Burial Insurance or Funeral Insurance)- addresses the costs associated with a burial or cremation. These are life insurance type products, but differ from traditional life policies due to their lower limits of insurance, application process and annual cost. Using me as an example, the lowest limit of traditional life insurance I can buy with a carrier is $100,000 at an annual premium of $1,776. For comparison purposes, the annual premium for a Final Expense policy with a $20,000 limit is $87.15. If my goal were solely to cover the cost of a funeral, I would opt for the Final Expense policy.
According to the National Funeral Directors Association, the average cost for a funeral in 2012 was $8,343. I am aware of three funerals involving relatives or clients this year. Each funeral cost over $11,000, but under $18,000. With prior planning, one can plan and pay for a funeral that meets their needs. Things to consider when estimating the total cost man include burial or cremation, facilities and vehicles, flowers, food and refreshments, cemetery costs, obituary, grave markers and any lawyer related costs.
Five Common ways I have seen people address their death include:
- Think about a plan, but not act upon it.
- Put money aside somewhere at ho me or elsewhere.
- Create a separate bank account for funeral expenses.
- Purchase coverage from a local funeral home.
- Secure a life insurance policy (traditional or final expense).
With options 2-5, it is important that the survivors know what funds are available, how to access the funds, and your intentions. I know of one example where the survivors did not find $2,147 saved for a funeral until two years after that person’s death. The money along with a piece of paper with the word, “funeral” written on it was found in a coffee can in the basement.
Other than “self-funding” a funeral, one can secure a Final Expense product from a funeral home, directly from a life insurance company, or with the help of a licensed insurance agent. Securing a proposal from at least two of these sources and then comparing terms might be advantageous. Again, the keys include prior planning, action, and communication with the survivors.
A few consumer related resources include:
www.publications.usa.gov or 719-295-2675
www.mn.gove/commerce.com or 651-296-2488
Thank you to the e-mailer for requesting information on a common-and eventual-situation for all of us. Your requests for future insurance-related topics is both encouraged and appreciated.
John A. Shega is the owner of Aspire Insurance Agency. He frequently writes and speaks about various insurance matters. Contact John at 218-741-0000.